Mortgage applications take dive

Activity declines to 14-month low as rates push up

WASHINGTON — An index of applications for U.S. mortgages fell last week to the lowest point in 14 months, as mortgage rates stayed close to their highest level in a year.

The Mortgage Bankers Association of America said Wednesday that its measure of mortgage applications declined 13.3 percent, to 638.6, the lowest level since June 2002.

The refinancing index fell 21.3 percent, the eighth straight weekly decline. Refinancing has declined 78 percent since the last week of May, the biggest three-month drop since the group started keeping data in 1990.

Homeowners have less incentive to refinance and extract cash from their homes after two months of rising mortgage rates, said Orawin Velz, a senior economist at Fannie Mae, the largest source of mortgage financing.

Refinancing "has been devastated as profitable opportunities have vanished," said Steven Wood, principal economist at Insight Economics in Walnut Creek, Calif. "Housing's contribution to economic growth will turn negative by the fourth quarter."

The average rate on a 30-year, fixed-rate mortgage held at 6.22 percent this week, the mortgage bankers group said, up from a record low of 4.99 percent in mid-June.

It is profitable for less than a third of homeowners to refinance now because of higher rates, compared with about 90 percent in June, said Velz.

Homeowners "had more time than ever to refinance with rates staying below 6 percent" from December through July, said Kevin Jackson, a senior mortgage analyst at RBC Dain Rauscher Inc. Now, they've "missed the boat."

Even if rates head lower again, it will probably not be enough to push refinancing back up toward the recent record level, analysts said.

"We think rates could drop by the end of the year," said Jay Brinkmann, vice president of research at the mortgage bankers group. "But we are not expecting a big surge in refinancing."

Fannie Mae and Freddie Mac forecast that refinancing would fall by at least half in 2004. Refinancing volume will drop to about $850 billion from $2.60 trillion this year, according to Fannie Mae. Freddie Mac said refinancing will decline to $1.18 trillion from $2.44 trillion.

Although loan demand for refinancing has fallen sharply in recent weeks, demand for loans to buy homes has dropped only slightly, supported by strong home sales and construction.

The purchase component of the mortgage bankers index decreased 3.6 percent last week, to 375.5. The number of adjustable-rate mortgages rose to 24.4 percent, the highest since May 2000.